Nationalization push over rare earth metals rearing its head again

Taylor MillardPosted at 11:31 am on April 7, 2018

The rumblings of a trade war with China are also increasing the push in certain circles for nationalizing the only private sector deposit of rare earth minerals in the U.S. The Week’s Jeff Spross suggests China could win a trade war with America by simply ending exports of rare earth metals.

Basically, if China really wanted to mess with America, it could just clamp down on these exports. That would throw a massive wrench into America’s supply chain for high-tech consumer products, not to mention much of our military’s advanced weapons systems.

In fact, China isn’t just America’s major supplier of rare earth metals; it’s the rest of the globe’s major supplier as well. And in 2009, China began significantly clamping down on its rare metal exports. Once, China briefly cut Japan off entirely after an international incident involving a collision between two ships. This all eventually led to a 2014 World Trade Organization spat, with America, Japan, and other countries on one side, and China on the other.

That forced China to abandon its quotas. But it also shows China is willing to use its advantage in rare earth metals to play hardball if it’s pushed far enough. And that’s one of the main reasons observers are nervous.

Spross points out there is a rare earth metal supply in Mountain Pass mine in California, but that’s sort of in Chinese hands as well because the Colorado company which owned the mine went bankrupt. Spross wants to get the Chinese out, so…

If proper production of rare earth metals is too expensive for private profit, then government should step in. Either subsidize domestic industry, or nationalize it through direct industrial policy. Lots of companies are hard at work trying to find alternatives to rare earth metals as well, and we could be pouring public investment into that research.

He suggests doing what the French did with nuclear power through the Messner Plan vis a vis the government-owned Electricité de France. In other words: nationalization or at least heavily government subsidized industry. Spross has similar viewpoints on the steel industry, although he favors mass government spending over outright government ownership (something Truman tried in 1952 and was rebuffed by the Supreme Court).

The idea of a nationalized rare earth metal industry in the U.S. is also favored by American Elements CEO Michael Silver who met with President Donald Trump last year on the issue. Silver told Bloomberg he wanted it turned into a national laboratory to rebuild “America’s rare-earth mining industry. His plan received praise at Breitbart, where Silver had previously advocated reducing government involvement in the permitting process. Funny how things change when the “right party” gets in power (note sarcasm).

There is still opposition to the nationalization idea, specifically from Competitive Enterprise Institute’s Center for Energy and Environment Director Myron Ebell. He told me the idea of nationalization really hasn’t worked for countries in the past, specifically in Great Britain in the 1940’s and 50’s.

The purpose of nationalizing the steel industry or the coal mines was to make sure the labor unions would not lose jobs, that they’d be guaranteed employment. And they eventually, of course, nationalized the auto industry in Britain and the result was that the industry went broke and was closed.

There’s also the fact the government-owned Amtrak hasn’t paid for itself and gets over a billion dollars in federal cash each year. Fannie Mae and Freddie Mac have been abysmal failures for the U.S., and there are humongous problems with Venezuela’s nationalization of PDVSA. Nationalization won’t work, even if under the idea of national security to protect us from China.

Ebell also doesn’t think the California mine even needs to be nationalized, even if China decides to cut off all access to rare metals. He believes government intervention will actually do more to hurt the economy citing the 1973 oil crisis involving OPEC and an embargo.

The Arab Oil embargo did not due the primary damage to the U.S. economy. The primary damage was done by the Nixon Administration’s response to the Arab oil crisis which was to put price controls on oil and gas production. And that is something which took a long time to overcome. Really not until Reagan…who got rid of the oil and gas price controls and within months everyone had forgotten about the decade-long crisis of high gas prices.

This is why there’s no reason for the government to even consider nationalizing or quasi-nationalizing any sort of industry, no matter how large or small. The free market finds a way, to paraphrase Dr. Ian Malcolm, and it’s important for people to realize this before promoting any sort of alternative.